In early European trading, Eurostoxx futures fell by 0.3%. German DAX futures also decreased by 0.3%, while UK FTSE futures dropped by 0.2%.

Market Sentiment Overview

European markets are starting the day with caution, showing a slight decrease in equities. In contrast, tech stocks saw gains on Wall Street yesterday, and US futures are stable, helping to create a balanced market sentiment at the start of the day. S&P 500 futures rose by 0.1%, keeping the optimism alive after the Nasdaq reached a record high. This stability in US futures stands in contrast to the uncertainty seen in European markets. There is a noticeable difference between the momentum of US tech stocks and the hesitation in Europe. This creates an opportunity for a pairs trading strategy, where one could buy Nasdaq 100 futures while shorting Eurostoxx 50 futures to take advantage of the gap. The Nasdaq 100 has outperformed the Eurostoxx 50 by over 15% this year, thanks to strong earnings in US artificial intelligence compared to weak industrial data from Germany. With the Nasdaq hitting another record high yesterday, we can expect low volatility, which makes protective options cheaper. The CBOE Volatility Index (VIX) is currently around 13.2, close to the lower end of its recent range. This presents a good opportunity to buy put options on tech-heavy ETFs, offering a smart way to hedge long portfolios against potential downturns after a strong performance.

Historical Market Trends

It’s important to consider the calendar, as September has historically been a weak month for stocks. Since 1950, the S&P 500 has averaged a decline of about 1.1% in September, making it the worst month for equities. This historical tendency supports a cautious approach, perhaps using bear put spreads to manage risk while preparing for a possible dip. The drop in German DAX futures may be related to new inflation data from Destatis, which showed German annual inflation for August 2025 rising to 3.1%. This surprised economists who predicted a decline to 2.8%. Renewed inflation concerns might prevent the European Central Bank from cutting rates, increasing pressure on European stocks compared to US ones. This further reinforces the preference for US markets over European ones in the near term. Create your live VT Markets account and start trading now.

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